Crackpot Central Banks

CENTRAL BANK ‘CRACKPOT’ IDEAS ARE SPLITTING SOCIETY: Dylan Grice (CNBC)
“Loose monetary policy by central banks around the world has made us sick, according to Societe Generale's former strategist Dylan Grice, who says that cheap money has caused divisions in society and in some cases could even add to the risk of war...[The policies have]  increased revenue for...governments, Grice added, but inflation and a lack of spending power will mean the people furthest away from this new money are the ones that will end up losing out.

"Deliberately impoverishing one group in society is a bad thing to do. But impoverishing a group in such an opaque, clandestine and underhanded way is worse. It is not only unjust but dangerous and potentially destructive," he said.  Full story at...

http://www.cnbc.com/id/100544920

"I previously posted Mike Shedlock’s summary of a paper by Emmanuel Saez and analysis of the impact of QE Infinity.  Mish noted, “From 2009 to 2011, average real income per family grew modestly by 1.7% but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%.

”For more see http://globaleconomicanalysis.blogspot.com/2013/02/top-1-received-121-of-income-gains.html

SOME ANECDOTAL EVIDENCE

“Lamborghini sales...according to AP...[have] soared by 50% in the US and [are] up by 34% in the recession-riddled Europe.” 
http://www.zerohedge.com/news/2013-03-12/what-recession-2012-lamborghini-deliveries-50-us-34-europe
At the same time, Food Stamp recipients hit an all-time record.  20% of Americans are on food stamps as of the close of 2012.  (I sure am glad the economy is recovering; but if it is…why are more people on food stamps?)
http://www.zerohedge.com/news/2013-03-11/foodstamp-recipients-hit-record-alongside-record-dow-jones-and-record-debt-20-eligib

MARKET RECAP
Wednesday, the S&P 500 finished up 0.1% to 1555 (rounded). VIX fell about 3.6% to 11.83.

NTSM

Tuesday, the NTSM analysis remained HOLD at the close.

Sentiment has fallen to 52%-bulls for the 5-day moving average (based on closing amounts of dollars invested in select long/short mutual funds with Guggenheim {formerly Rydex} mutual funds).  That’s the number I follow.  52% is a high number, but not extreme, and the market can improve because sentiment still has room to go up. 

On the other hand, the S&P 500 is 9.5% above its 200-day moving average as of Wednesday’s close.  10-15% above the 200-dMA is probably about as far as the market can get before it goes into correction so I doubt there is too much more upside.  We’ll see.

MY INVESTED POSITION

With long-term funds, I remain about 20% invested in stocks as of 5 March, due to my risk tolerance rather than the numerical NTSM analysis.  To put it bluntly, I currently have no tolerance for risk.  (If I were strictly following the NTSM numbers, I'd still be heavily invested in stocks.) My reasoning may be found at…
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

ADS Index – Trending Down

From the Federal Reserve: “The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.” 

Chart and more at...
http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/

The ADS Business Conditions Index is produced by the Philly Fed.  While most mainstream economists say there is now little chance of recession, the ADS index shows a troubling trend.  The trend is down and it is punctuated by lower lows and (with one exception) lower highs.  I’ve added a yellow line indicating the start of the 2007 Great Recession and a Red line indicating the start of the 2001 recession and arrows to help see the rate of decline compared to the prior recessions.

Since I am not an economist, and this is not a complete picture of the economy, I’ll just leave it to you to draw conclusions. It is clearly a cause for concern.

Since this blog covers the stock market, it is best to see what investors think about recession, since that is the group whose opinion we consider most important.

I track the relative strength of the Morgan Stanley Cyclical Index compared to the S&P 500.  The cyclical stocks are most sensitive to recession and should give us some advance warning of recession, or at least a downturn in the markets.  This is similar to “DOW Theory” that tracks the Transportation stocks for a similar reason.  Following the cyclical index just provides a bigger basket of stocks than just transportation.  Transportation stocks are included on the Cyclical Index.

Currently the Morgan Stanley Cyclical Index is outperforming the S&P 500 by about   2% over the past 2-weeks and it is up 6% over the same period.  Investors say there is no chance of recession in the next quarter.

GARTMAN SAYS HE WAS WRONG – BUT REMAINS OUT

Dennis Gartman (Editor of the Gartman letter) said Monday that he was wrong about the stock market (getting out in February), but he is not getting back in either.  “Although the stock market rallied 3 percent since Dennis Gartman announced he had exiting equities, the editor of The Gartman Letter said Monday on CNBC that he's sitting out.

‘I loved stocks at one time, and I'm going to stay upon the sidelines,’ he said.” 

Full story at...

http://www.cnbc.com/id/100544038

MARKET RECAP
Tuesday, the S&P 500 finished down 0.24% to 1552 (rounded). VIX rose 6%, to 12.27.

NTSM

Tuesday, the NTSM analysis remained HOLD at the close.

Only the Volume indicator is positive now. That’s not a surprise since it is a trend following indicator.  Sentiment, Price and VIX indicators are neutral.

MY INVESTED POSITION

With long-term funds, I remain about 20% invested in stocks as of 5 March, due to my risk tolerance rather than the numerical NTSM analysis.  To put it bluntly, I currently have no tolerance for risk.  (If I were strictly following the NTSM numbers, I'd still be heavily invested in stocks.) My reasoning may be found at…
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

Friday’s Unemployment Numbers – Not so good after all…

I picked up a blog from ZeroHedge Friday that indicated there were clouds in the silver lining regarding the monthly jobs report.  Here’s the link…
http://www.zerohedge.com/news/2013-03-08/february-multiple-jobholders-rose-record-full-timers-dropped-part-timers-increased

Mike Shedlock at Global Economic Trend Advisors parsed the numbers to find the “good news” will be quite short lived.  (Forget the silver lining – this looks more like a storm cloud.)

“THE ECONOMY SHED 276,000 FULL-TIME JOBS” (Global Economic Trend Advisors)
Friday's jobs numbers were reported as great and even had some on CNBC discussing an end to Fed easing; but the numbers weren't great - they were misunderstood. Mish Shedlock, at Global Economic Advisors, explained the numbers pretty well:

"According to the household survey (on which the unemployment rate is based) the economy added a healthy 170,000 jobs. However, a whopping 446,000 of those jobs were part-time jobs. Simply put, the economy shed 276,000 full-time jobs." Mish further noted that "A Gallup Survey yesterday (Thursday) on Jobs show the percentage of workers working part time but wanting full-time work was 10.1% in February, an increase from 9.6% in January, and the highest rate measured since January 2012....and...fewer Americans are working full-time for an employer than were doing so a year ago, and more Americans are working part time. Although part-time work is clearly better than no work at all, these are not the types of good jobs that millions of Americans are still searching for."

Mish wrote simply, "Obamacare is in play. Recall that under Obamacare, the definition of full-time employment is 30 hours. The BLS cutoff is 34 hours. At 30 hours, companies have to pay medical benefits so they have been slashing the number of hours people work. This reduced the number of hours people worked and provided an incentive for many to take on an extra job."

(My cmt: Furthermore, companies that cut hours for their employees had to hire more part time employees to fill the gaps created when they cut the hours of their existing employees.)

Mish concluded: "The reported 236,000 surge in the establishment survey is not real. It will be revised away."
Full story at...
http://globaleconomicanalysis.blogspot.com/2013/03/spoiling-great-employment-news.html

FED TO CUT MORTGAGE PURCHASES (WSJ) –

"With the housing market recovering, Federal Reserve officials may change the pace of purchases of mortgage-backed securities, a tool central bank officials have used to push down mortgage rates and boost the housing market. In remarks prepared for a speech Friday night in Avon, Colo., Federal Reserve Gov. Elizabeth Duke also said the central bank's policies have helped the housing market recover from the deepest bust in decades.
"I think the evidence is pretty clear that a recovery in the housing market is finally under way," Ms. Duke said...”  Full story at…
http://online.wsj.com/article/BT-CO-20130308-713230.html

MARKET RECAP
Monday, the S&P 500 finished up 0.3% to 1,556 (rounded).  VIX fell about 8%, to 11.56.  

Market internals are improving; this market may have some positive surprises yet.

NTSM

Monday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION

With long-term funds, I remain about 20% invested in stocks as of 5 March, due to my risk tolerance rather than the numerical NTSM analysis.  To put it bluntly, I currently have no tolerance for risk.  (If I were strictly following the NTSM numbers, I'd still be heavily invested in stocks.) My reasoning may be found at…
http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

 

Employment Data – The Stock Market Top

NON FARM PAYROLL EMPLOYMENT DATA
“When it comes to government data, every silver lining has a cloud. Sure enough even today's NFP (Non-Farm Payroll) number, which on the surface was quite acceptable, had its share of thorny issues…”

“..in February according to the Household Survey, the number of full-time jobs declined by 77K from 115,918 to 115,841. The offset: a jump in part-time workers which rose from 27,467 to 27,569, or 102K… But the most surprising development in February…was that the number of multiple job-holders rose by a massive 340K, which just happens to be a record.”  Full post at…

http://www.zerohedge.com/news/2013-03-08/february-multiple-jobholders-rose-record-full-timers-dropped-part-timers-increased

My Cmt: Economists say that the Patient Protection and Affordable Care Act (PPACA), commonly called Obamacare, is likely the cause of the increase in part-time employment.  Part-timers are exempt from the law.  This is simply another case of unintended consequences.

FOR A LAUGH – DOW 36,000 (ZeroHedge)

“In a testament to just how euphoric stock markets are right now, James K. Glassman the co-author of the fabled Dow 36,000 — a book published in 1999 that claimed that stock prices could hit 36,000 by as soon as 2002 (and which quite understandably is now available for just 1 cent per copy) — has written a new column for Bloomberg View claiming that he might have been right all along...”  Full post at ZeroHedge…
http://www.zerohedge.com/

That’s as good a reason as any to be out of the stock markets right now. 

MARKET RECAP
Friday, the S&P 500 finished up 0.5% to 1551 (rounded).  VIX fell about 4%, to 12.59.  

WHEN’S THE TOP?

The market internals are still turning up.   Sentiment has been falling as more traders are betting the market will fall.  That’s the kind of action that may induce the real Pros to remain long and keep this market heading higher.  So a higher target, perhaps as much as 5% above 1545 (or about 1625), may indeed prove to be a more accurate final answer. (I had been calling for a top of 1545.)

I remain reasonably confident that a correction will commence between today's close and around 1625.  1625 would be a stretch, but stranger things have happened.  Party like it’s 2000!

NTSM

Friday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION

I covered my hedging, short-position Friday at S&P 1547, partly because the market internals continue to look up.  I think there will be another big day when the S&P will move up 1-2%.  At that point I’ll reset a hedging-short.

The nature of a hedge is that I lost money on the short, but made money in funds that remained invested.  So I am net even overall.  Why do that?  Well, it saves the tax gain (and accounting headache) of selling long-term mutual funds and limits the downside.  Now I have a tax loss instead of an unrealized gain…oh joy.

With longer term funds, I remain about 20% invested in stocks as of 5 March, due to my risk tolerance rather than the NTSM analysis.  To put it bluntly, I currently have no tolerance for risk.  My reasoning may be found at…

http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

 

Recession or Not – Most say Not

US ECONOMY CLEAR FOR TAKEOFF: BLACKROCK’S FINK
“The U.S. economy is ready to take off, BlackRock Chairman and CEO Larry Fink said Thursday, citing the health of the banks and the nation's energy resources.” Full story at…
http://www.cnbc.com/id/100534427

WE ARE IN RECESSION – STILL (ECRI)

ECONOMIC CYCLE RESEARCH INSTITUTE)
“ECRI is…insisting that the U.S. economy is mired in the middle of a mild recession that began in the middle of 2012... but we just don't know it yet…In support of this position, ECRI Co-Founder and Chief Operations Officer Lakshman Achuthan points out correctly that the timing of recessions is often determined only with the benefit of hindsight…Achuthan thinks that, when the final revisions are in, they will show a recession that began in mid-2012.” Full story at…
http://finance.yahoo.com/blogs/daily-ticker/ecri-still-insists-recession-just-don-t-know-163306844.html

You couldn’t find two more divergent viewpoints on the economy. 

My own analysis simply compares the Morgan Stanley Cyclical Index vs the S&P 500 to see what investors think about recession.  (Cyclicals are recession sensitive so if the cyclicals were falling relative to the S&P 500 we might be concerned about recession.)  Over the last month, cyclical stocks are now slightly outperforming the S&P 500 and over the last 10-days, cyclicals are up over 4%.  Investors are currently betting against recession.

If you think there is disagreement over the economy, just look at opinions about the stock market.  It seems that pundits are either calling for a great resurgence in stocks or a correction/crash.

I am on the correction/crash side of the fence.  I think a correction is nearly certain; it may start now or at most after another 5% advance in the S&P 500.  If it starts now, I am expecting a 10% correction that has potential to get worse, but that would depend on the news.

MARKET RECAP
Thursday, the S&P 500 finished up about 3Pts to 1544 (rounded).  VIX fell about 3.5%, to 13.06.  

The market internals are turning up, so perhaps the S&P 500 will head higher.  That’s hard to say.  The S&P 500 tried both yesterday and today to breach my projected top of 1545, but it didn’t make it.  With the internals looking up, I may be proven wrong that 1545 will be the top.  As noted yesterday, I think S&P 500 might manage to get 5% above today’s close, but not much farther.

NTSM

Thursday, the NTSM analysis remained HOLD at the close.

MY INVESTED POSITION

I took a hedging, short-position Wednesday afternoon, 27 Feb 13 – I’ll cover if S&P breaks above 1545. 

With longer term funds, I cut back to about 20% invested as I went to cash in the retirement account on 5 March due to my risk tolerance rather than the NTSM analysis.  To put it bluntly, I currently have no tolerance for risk.

You may review my reasoning at…

http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html

 

Investing like a Border Collie

I’D RATHER BE A BORDER COLLIE
It looks to me like there are three-classes of people who own stocks.  At the bottom we have the sheep.  These folks are the lost, dazed and confused who plan to buy-and-hold, but actually panic out at the bottom and buy back at the top.  Surprisingly, it is a large group. 

One need only to review the Investment Company Institute data to see that for the last 2-years there has been outflows from US equity stock funds.   Now that we are at new highs, about 22-billion dollars have come into these stock funds over the last 6-weeks.  The prior inflows, 2-years ago, were at a top, right before a 20% correction.

At the other extreme, we have the wolves masquerading as shepherds.  These are the Wall Street investment houses that can manipulate the markets by adjusting their computers to vary volume and sales.  (I am not accusing anyone; but it looks like they have the capability.  If a Flash crash can be caused by a few of these guys turning off their computers, then it would be an easy game for them to manipulate prices). 

In between there are the pros, semi-pros and serious market followers who don’t want to be shorn-sheep, but aren’t in a position to be shepherds.  They’re the Border collies – smartest dogs in the pack.

So, what are the Border Collies saying?

Here’s what I say: We have a correction near (or now).  The upside is 5% above 1545 (my sell point).  The downside is in the vicinity of 10% lower, but if the news goes sour it could get a lot worse.   Here’s more from some Pro Border Collies.   

TAKE CHIPS OFF THE TABLE, MARKET CATASTROPHE BREWING: PRO (CNBC)

"You should take chips off the table," (Stanley) Nenner said..."The insiders were buying [in 2012] and now the insiders are selling," he said...."I've been warning about the bond market also, there's going to be a catastrophe soon. And Gold, people tried to buy in every dip which was too early and you have to get used to [the fact] that sometimes the situation is dangerous and you cannot make the profit. Try to keep the money you have for better times," he added...there were hardly "any bright spots" in asset markets, until 2018.” - The Charles Nenner, Research Center focuses on the cycle analysis of markets.  Full story at...
http://www.cnbc.com/id/100526315

MARKET MUSIC HAS STOPPED, I’M OUT: GARTMAN (CNBC, 21 Feb 2013)

“Fed easing has helped fire up one of the strongest stock market rebounds in three-years with the S&P 500 rising from lows its March 2009 low of 666 to 1,540 currently. Now the party could be over, Gartman said, likening the sell-off to a game of musical chairs... When the music stops,everybody dashes to find a seat and many people get left behind. Now you have a lot of people scrambling to find a seat," he said. "It is always astonishing to me, after decades in the business, to understand how the psychology can change so quickly — it almost leaves you gasping for air." – Dennis Gartman, Publisher of the Gartman letter, a daily commentary on the global capital markets.  Full story at...
http://www.cnbc.com/id/100478119

THE BIG GAMBLE (CNBC) - Druckenmiller

Stanley Druckenmiller : “... the Federal Reserve’s easy money policy is forcing investors into stocks: "They're great value only relative to zero interest rates. They're not great value on an absolute basis....It's one thing to control short-term interest rates," he said. "It's another thing when you're taking 75 to 80 percent of the bond supply and holding that price down. … This is a big, big gamble to be manipulating the most important price in free markets, [interest rates]...Maybe we're in the 7th or 8th inning of the stock market rally...” - Stanley Druckenmiller, former chairman & CEO, Duquesne Capital Management
Full story at...
http://www.cnbc.com/id/100522303

MARKET RECAP
Tuesday, the S&P 500 finished up about 1Pt to 1541 (rounded).  VIX rose about 0.4%, to 13.53.  

The market internals look a little more positive, so perhaps the S&P 500 will head higher.  With ongoing Federal Reserve intervention perhaps my 1345 estimate will turn out to be too low.

NTSM

Wednesday, the NTSM analysis remained HOLD at the close; but as noted below, I sold down to 20% invested in stocks because my target for the S&P 500 is 1545.

MY INVESTED POSITION
I took a hedging, short-position Wednesday afternoon, 27 Feb 13 – I’ll cover if S&P breaks above 1545 - yes, really. 

With longer term funds, I cut back to about 20% invested in stocks as I went to cash in the retirement account on 5 March due to my risk tolerance rather than the NTSM analysis.  To put it bluntly, I currently have no tolerance for risk. 

Why I got (mostly) out of the Stock Market Today

BIG BRICK WALL FOR STOCKS (CNBC) - Zimmerman
“All technical indicators suggest the stock market is poised for a crash, Walter Zimmermann of United-ICAP said Monday.
 
On CNBC's "Fast Money," the chief technical analyst said that a look at the bigger picture shows a "bearish rising wedge" in the stock market charts... "Sentiment is definitely too bullish," he said, noting that investors have not been this bullish for this long since 1997, during which the stock market kept making new highs. "Here, the pace has become glacial."

...there's a chance of one more leg up, maybe to 1,590, best case. Everything leads to a big brick wall overhead at 1,590."  Full story at…http://www.cnbc.com/id/100519002
  
ASSET (STOCK MARKET) BUBBLES (Lance Roberts)

“The chart below shows top line sales versus reported and operating earnings. The last two major market peaks have coincided with earnings topping, and beginning to weaken, much like we are seeing currently.”

Chart from http://www.streettalklive.com/daily-x-change/1560-there-is-no-asset-bubble.html

"I don't see much evidence of an equity bubble." - Ben Bernanke

My comment: I remember a rather famous exchange between Bernanke and Maria Bartiromo of CNBC where Ben said that there was no evidence of a real estate bubble; that was a year or two before the crash.  Lance Roberts presents convincing evidence of several bubbles now underway including margin debt in the stock market (the chart looks like 2007 all over again) and junk bonds at record low yield (driven down by excess demand) and suggested that the risk of recession has increased.

MARKET CRASH

Lance Roberts concluded his blog with the following:
“History is replete with market crashes that occurred just as the mainstream belief made heretics out of anyone who dared to contradict the bullish bias.

Does an asset bubble currently exist? Ask anyone and they will tell you "NO." However, maybe it is exactly that tacit denial which might just be an indication of its existence.” – Lance Roberts, StreetTalk live

http://www.streettalklive.com/daily-x-change/1560-there-is-no-asset-bubble.html

MARKET RECAP
Tuesday, the S&P 500 finished up about 1% to 1540 (rounded).  VIX was down 3.8%, to 13.48      

At mid-day, the S&P 500 was up to 1542, only 3pts below my 1545 target.  Given that my target looked like it would be met, and the big up-day underway, I decided to take profits and get out of the market.

Right now, that looks like a questionable move, because today was not a statistically significant day as I run the closing NTSM numbers.  That’s the risk of trying to guess the direction of the market, even for only part of a day.  I expected the S&P 500 to keep going up when I impulsively decided to sell.  (My retirement program requires that orders be made before noon.)

IS SELLING OUT THE RIGHT MOVE?

Let’s consider why this may still be a good idea.
(1) The Pros I follow (and you see their blog-links here) are generally very negative now.
(2) The NTMS analysis has shown cracks even though it is now HOLD.
(3) The cyclical stocks are underperforming (They did better today, but are still underperforming).
(4) Breadth (%-stocks advancing) is going down while the market goes up.
(5) The end of the 2% cut in SS taxes, the Sequester, and European recession will likely reduce corporate profits.
(6) We are approaching 10% above the 200-day moving average on the S&P 500.  That may be a correction trigger.
(7) The S&P 500 is now up 8% on the year.  That’s a pretty good return given all of the problems world-wide.  Even if I am wrong by getting out now, there is a good likelihood I’ll be able to buy back later at a lower price.
(8) The investment Institute indicates inflows into domestic long-term mutiual funds.  That has been near a top in the past
(9) The market is making new highs.  Sell when everyone else is buying; buy when everyone else is selling
(10) Last, and most importantly, caution is the watch word, because I don’t want to accept losses now, even though I am a gambler at heart.

“What’s the matter McFly?...Chicken?” Bwaaaak, Buk, Buk, Buk, Bwaaaak.  Yup!

CORRECTION OR CRASH

I am not predicting a crash now; it looks like a correction top to me; but if the news turns bad, the correction could morph into something more serious. 

NTSM

Tuesday, the NTSM analysis remained HOLD at the close with most indicators solidly in neutral.

MY INVESTED POSITION

I took a hedging, short-position Wednesday afternoon, 27 Feb 13, with a very tight stop.  I said that if Tuesday was an up day – I’d cover the short.  I didn’t because of the big move up.  In such a case, it is better to wait at least a day.  I’ll cover Wednesday if the market is up again.

With longer term funds, I cut back to about 20% invested as I went to cash in the retirement account. 

Based on an emotional decision (yeah, I know – I’m supposed to be disciplined and follow my numbers in the NTSM system) I sold stocks back to about 20% in the stock market on 5 March.  NTMS was HOLD at the time, but for a lot of reasons See 5 March 2013 blog), I decided to sit out for a while and watch the market from the outside.  

I am currently invested in a range of near 20% invested in stocks.